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Executives

Paul Longhini

Julie M. Howard - Chief Executive Officer, Director and Member of Executive Committee

Lucinda M. Baier - Chief Financial Officer and Executive Vice President

Lee A. Spirer - Executive Vice President and Global Business Leader

Analysts

David Gold - Sidoti & Company, LLC

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Randle G. Reece - Avondale Partners, LLC, Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Navigant Consulting (NCI) Q1 2013 Earnings Call April 25, 2013 10:00 AM ET

Operator

Good morning, and welcome to Navigant's First Quarter 2013 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Paul Longhini. Sir, you may begin.

Paul Longhini

Good morning, and welcome to Navigant's first quarter 2013 earnings conference call. Before I turn the call over to Julie Howard, Navigant's Chief Executive Officer, I would like to point all of you to the disclosure at the end of our earnings release for information about any forward-looking statements that may be made or discussed on this call. We have posted our first quarter 2013 earnings release, as well as supplemental information about the quarter, on our website. Please review this information, along with the company's SEC filings for a disclosure of facts that may impact subjects that we discuss this morning.

Lastly, we will also be discussing one or more non-GAAP financial measures. Please review our earnings release for all of the disclosures required by the SEC, including reconciliations to the most comparable GAAP measures. And now, over to you, Julie.

Julie M. Howard

Thanks, Paul, and good morning, everyone. Thanks for joining our call today. With me today in Chicago is Navigant's new Chief Financial Officer, Cindy Baier. As you know, Cindy joined Navigant at the end of February. And after working with Tom Nardi, preceding his retirement, officially took the reins as our CFO in mid-March.

Cindy is learning the business quickly, and as you will hear from her today, is already providing fresh perspectives and insights into our business.

Also with me on the call this morning are several other members of our corporate team, including Lee Spirer, Navigant's Global Business Leader. Lee will be available for questions at the conclusion of our remarks.

I'd like to begin by saying that I'm very happy with our performance during the first quarter of 2013, as we worked simultaneously to capture and deliver on substantial opportunities, driving growth in our Healthcare and Energy segment, while also managing through the wind-down of the 3 large mortgage servicing review engagements we talked about earlier, and the sale of a portion of our Economics practice.

In first quarter 2013, we achieved RBR of $187 million, up modestly from a very strong first quarter 1 year ago. Importantly, first quarter 2013 adjusted EBITDA increased 8% on a year-over-year basis, bearing the fruits of our efforts to drive margin improvement across the firm.

Additionally, first quarter 2013 adjusted EPS increased 17% over that of first quarter 2012.

Our strategy to perform, bank and innovate is resonating with employees and shareholders alike, and I am pleased that we are making steady progress in our operating performance, which will create value for our shareholders.

Our long-term strategic focus continues to be to build a diversified portfolio of businesses that are focused on sectors facing transformational change, as well as in industries with significant, legal and regulatory complexity. As evidenced by our first quarter results, Navigant can grow RBR and profit even when one of its segments faces soft demand or a ramp-down in an event-driven service offering. While we will likely have ongoing quarter-to-quarter volatility, with our business model, we have also demonstrated our ability to consistently maintain year-over-year growth and profitability.

As many of you know, Navigant's experts are involved with some of the world's most important, complex and challenging issues, facing the highly regulated sectors of financial services, Healthcare and Energy. Economic pressures, regulatory intervention and reforms drive legal and compliance challenges, new strategic directions, operating pressures and an ever-increasing production and accumulation of data for our clients. All of these business pressures create opportunity, and as the issues evolve, so do we.

I wanted to spend a few minutes today, prior to going into detail with commentary on our financials, highlighting some of the broad market issues that are driving demand for our services and that are subsequently impacting our financial results now and into the future.

The credit crisis that has been top of mind since the recession of 2008 continues to be a driving force of opportunity for Navigant, particularly in our legal and compliance services businesses. It has manifested itself in demand for expertise and solutions on a wide range of challenges, facing our financial services clients. And the scope of our expertise remains unmatched, and the impacts on our financial result has been impressive over a 4- to 5-year period.

Regulatory enforcement activity, particularly from the SEC and the DOJ, is another trend that impacts Navigant. Over the past several years, regulatory enforcement emphasis has focused on a wide range of matters, many known to all of you, including anti-bribery and corruption, insider trading, Ponzi schemes and issues arising from the credit crisis.

While Navigant has benefited from these trends, there's also been less emphasis on financial reporting issues, which have historically been a source of significant event-driven opportunity in our forensic accounting business. That said, we believe that the regulatory priorities are shifting and its focus on accounting fraud and financial reporting issues will increase.

The SEC Office of the Whistleblower, which was established under Dodd-Frank, received over 3,000 complaints in its first year, including more than 500 related to financial reporting. We believe that Whistleblower complaints represent a potential leading indicator of investigative and regulatory enforcement activity, which appears consistent with the messaging being delivered regarding SEC's priorities for 2013.

Data proliferation is another trend, which is increasing the costs and the risks associated with data handling in litigation, and regulatory investigations, as well as with our clients' compliance challenges.

Navigant has responded by investing in technology, as I've spoken about over the last year, and a world-class team of experts to address both structured and unstructured data issues, thereby contributing to our growth in technology data and process-oriented engagements across all 4 of our operating segments. We believe that these investments will position us well for the future as we work to help our clients manage their most daunting event-driven data needs.

Likewise, the entire U.S. healthcare industry faces significant profitability challenges from the Affordable Care Act. Across the board, the nature of the relationships between providers, physicians, payers and pharmaceutical companies is dynamically evolving. For example, healthcare providers are transforming their businesses to accommodate revenues that are outcome-based, rather than driven by the quantity of services providers, while payers are aggressively trying to leverage data analytics to manage their cost base.

Physicians are increasingly aligning with each other and with the providers to benefit from scale, and the pharmaceutical industry is contemplating the new realities of placing products in a landscape where physicians may not be the ultimate decision-makers. To address the changing dynamics of this industry, Navigant is helping all of these constituencies and organizations chart a strategic course to improve the financial, operational and quality aspects of performance.

As you know, we have made key investments in talent and tools that enable us to deliver value at the intersection of all of these industry players, and we're also increasingly playing a role in assisting both the Centers for Medicaid & Medicare Services, as well as state governments.

I would expect that this challenging environment will remain for some time to come.

And finally, the Energy sector is also in the mix of transformational change, as alternative technologies, public demand and governmental regulations reshape how energy is supplied, and how we use it.

Navigant's thought leaders are working on improving and measuring the effectiveness of energy policies, while helping our clients comply with new standards for generation sources.

Additional demand for our services is also being driven by energy efficiency, the current environment of low natural gas prices and the derivative work surrounding alternative, distributed generation shift, and, of course, the smart grid.

Ultimately, we expect that this phenomenon will morph back into our energy markets' work and into more M&A activities for the business as well.

While I haven't discussed every trend that impacts Navigant's business, I hope that it is helpful to understand how some of the world's most important issues create demand for the company and our consultants.

Our resiliency as a company is steeped in our ability to address, analyze and provide solutions around emerging trends, while still maintaining a balanced business portfolio.

In aggregate, we have a strong steady-state business, with the flexibility and bench to scale and to take advantage of the episodic event-driven growth opportunities that we face.

I'm now going to turn the call over to Cindy for a more in-depth discussion of our quarterly results. And then following her remarks, we'll be available for Q&A. Thank you. Cindy?

Lucinda M. Baier

Thank you, Julie. Good morning, everyone. I want to start by letting you know how excited I am to be part of the Navigant team. I believe that Navigant is a great business, filled with incredibly bright people, who spend every day focused on solving critically important issues.

As I read about the most important issues of the day in my morning Wall Street, one of the things that I enjoy most is that Navigant's thought leaders and industry experts are working on many of the important issues that I'm reading about. I'm honored to be part of the team, and I'm very focused on helping drive improved shareholder value.

I also want to take a minute to thank our analysts, Tom Nardi, Julie, and the Navigant team, for being willing to invest the time to help me learn the business.

During the first quarter, we realized growth in both RBR and segment operating profit in 3 of our 4 business segments.

Importantly, Healthcare and Energy businesses both achieved double-digit RBR and segment operating profit growth, driven by substantial market needs and the strategic investments we have made to improve our capabilities. These 2 segments are well-positioned as a provider of choice to address the transformational changes that are occurring in Healthcare and Energy.

For the first quarter, RBR increased 0.5% to $187.3 million, compared to the same period last year. Healthcare RBR was up 19% from the same period last year to $43.6 million, with approximately 1/2 of the growth being organic.

We saw strong growth in our Life Sciences, strategy services and performance improvement practices.

Our Easton associates and EMPATH acquisition contributed to our growth within Life Sciences and performance improvement. Energy RBR was up 17% from the same period last year to $24.9 million.

The growth in our Energy segment was driven by strong demand for our energy efficiency consulting and our Pike acquisition.

Approximately 72% of the growth was organic.

FRCA RBR was up 12% from the same period last year to $41.8 million, driven primarily by year-over-year growth in the mortgage servicing review assignment, partly offset by lower revenues in restructuring and other practice areas.

We substantially completed work on 3 of the 4 large mortgage servicing reviews during the quarter. We continue to work on the remaining engagement, which we expect to wind down during the second half of this year.

The ramp down in mortgage servicing review work is expected to result in a decline in FRCA RBR during the near term, as we reposition our thought leaders that were leading these large projects.

As many of you know, Navigant's ability to respond quickly to the market needs drives opportunities for long-term growth, but occasionally, results in some short-term choppiness.

We expect new opportunities to emerge from evolving business regulatory requirements, such as Dodd-Frank, as well as from anti-corruption regulations, such as the Foreign Corrupt Practices Act and FATCA.

Revenues before reimbursement from our Disputes, Investigations & Economics segment of $77 million were down 16% when compared to a very strong first quarter of 2012.

Approximately 40% of that decline was attributable to the portion of the Economics practice that we sold.

Roughly 1/3 of the decline was attributable to a large investigative project that was very strong in the first quarter of 2012, but that was significantly ramped down, as the project came to its logical end.

The remaining decline was attributable to a variety of factors, including changes in regulatory and data trends, such as a softer SEC enforcement environment, which we are addressing by reallocating our investment in people.

In the last year, we reduced the number of consulting employees within this segment, but we increased the segment's tech headcount.

RBR declines were partially offset by the RBR attributable to AFE acquisition. Despite the RBR decline in the first quarter, we believe that for the year, this segment will be flat to down in the low single-digits.

As many of you know, large engagements create opportunity for long-term RBR and margin growth, but some short-term variability.

In the first quarter, segment operating profit totaled $65.4 million, a 2% decrease over the same period of last year.

Overall, our segment operating profit, as a percentage of RBR, was 35%, which compared to 36% in the same period of last year.

Healthcare segment operating profit was up 38% from the same period last year, to $15.8 million, reflecting strong RBR growth, while segment expenses, especially compensation costs, grew at a lower rate.

Segment operating margin increased 36% in the first quarter of 2013 from 31% last year.

Energy segment operating profit was up 21% from the same period last year to $8.8 million, and the margin increased 1 percentage point to 35%, as our operating cost leverage improved.

FRCA segment operating profit was up 9% from the same period of last year, to $15 million, driven primarily by strong RBR performance.

Segment operating margin declined 1 percentage point to 36%, as employee retention costs increased in the first quarter of 2013.

DI&E segment operating profit was down 24% from the same period last year, to $25.8 million. The reduced level of RBR year-over-year was partly offset by cost reduction initiatives that began during the fourth quarter of 2012.

Because DI&E is an event-driven business, it balances short-term RBR shortfalls with maintaining an appropriate infrastructure to support demand over the longer term.

DI&E did invest in technology during the first quarter, which compressed operating profit. We expect that this segment's margin percentage will improve as RBR recovers during 2013, and DI&E continues to work on its margin improvement initiative.

General & administrative expenses for the quarter were $32.5 million, 9% lower than the same quarter of last year.

Our improved G&A performance is primarily the result of reductions in bad debt, legal, information technology and real estate expenses. Approximately 1/2 of the improvement in G&A is timing.

Adjusted EBITDA increased 8% from the same quarter of last year to $29.9 million. On a year-over-year basis, our EBITDA margin improved by 100 basis points to 15.9%.

Our effective tax rate was 41.5% in the first quarter. This compares to 42.6% for the first quarter of 2012, and 41.8% for the full year of 2012.

The primary reason for the tax rate decline is improved profitability in certain foreign jurisdictions, as well as a small decline in the U.K. tax rate.

Our net income increased 19% to $13.8 million in the first quarter, compared to $11.6 million in the same quarter of last year.

Adjusted earnings per share totaled $0.27 for the quarter, up 17% from the first quarter of last year.

We generated $21.8 million of free cash flow during the first quarter of 2013. This is a 66% increase over the same quarter of last year.

Free cash flow, as a percentage of RBR, was 11.7%. One of Navigant's benefits is that we consistently generate strong cash flow because we have modest capital needs.

We benefited from the receipt of $15.6 million of cash from our economic sale. The cash from the economic sale is not included in our calculation of free cash flow.

We have $6.2 million of cash to repurchase 513,200 shares of stock. On average, we paid $12.07 per share.

We had $164.7 million of bank debt outstanding at the end of the quarter, for a leverage ratio of 1.44x EBITDA.

Our bank debt was $22.4 million lower than our debt at the end of the first quarter of last year.

Importantly, we significantly deleveraged the company. Our leverage ratio at the end of the first quarter of last year was 1.78x EBITDA.

As you can see, Navigant has a strong balance sheet, and it's positioned well to capitalize on future opportunities.

Let's turn now to our 2013 guidance. We are maintaining guidance. Based on the macro trends that impact our business and management's priorities, we have the following expectations: We're targeting $740 million to $800 million of RBR, with a midpoint of about 3.5% growth.

We expect $820 million to $880 million of total revenues. Our outlook for adjusted EBITDA is $115 million to $125 million. The midpoint reflects about 7% growth and a margin of 15.5% to 16%.

We estimated adjusted earnings per share of $0.95 to $1.10 per share. The midpoint reflects 4.5% growth.

We're expecting strong free cash flow of $60 million to $70 million. We estimate year-end 2013 debt of $110 million to $125 million, which is about 1x our projected EBITDA.

Thank you for taking the time to listen to my comments. And I'll now turn it over to the operator so you can ask any questions that you might have.

Question-and-Answer Session

Operator

[Operator Instructions] Our next question comes from David Gold with Sidoti.

David Gold - Sidoti & Company, LLC

On the mortgage review, the remaining project, and the ones that have run off, can you give a sense for, basically, how we should think about a baseline for the business there for the remainder of the year, for modeling purposes?

Julie M. Howard

A baseline, David, for just the business that holds those jobs, or are you talking about the segment?

David Gold - Sidoti & Company, LLC

No, the baseline for this -- that segment.

Julie M. Howard

Yes, so as we talked about in the first quarter, we had 4 very large jobs. 3 of them did wind down during the first quarter, and those are essentially complete. We still have one that will be ongoing through probably the third quarter. So that will put some downward pressure on the FR&C segment. Also included in that segment is our restructuring business, which, like all other restructuring businesses, has -- had some soft -- softness in demand over the past year. But on the flip side, we also have our Global Investigations and Compliance business that's embedded within that segment. And we've got a fairly robust pipeline of AML matters and other compliance opportunities. So I would anticipate that that segment -- we hope to be -- we hope to kind of maintain, but I think we could be down, at least in that segment, over the next couple of quarters.

David Gold - Sidoti & Company, LLC

Okay, that's helpful. But as far as, maybe, a sense for how much revenue run-off we could have, assuming, basically, I know some of this was fourth quarter. But basically, we're assuming these projects, basically run down to 0, right?

Lucinda M. Baier

So David, if I go back to the conversation that Tom had with you in the last quarter, I think we gave guidance that the FRCA segment would be down 20% year-over-year, primarily as a result of the growth in 2012, related from these large mortgage servicing reviews. We're still comfortable with that guidance, if that's helpful for you.

David Gold - Sidoti & Company, LLC

Perfect. Perfect, it sure is. Okay, and then 2 other small ones. One, a sense broadly, broad business, of hiring plans for the year and particularly, what particular segments you'd like to add folks in?

Julie M. Howard

David, it will be consistent with where we kind of expect to see our growth. So we have kind of our normal pipeline of professionals that we're reviewing standard hiring plans. But kind of given the trends in our business, we have a very robust hiring plan for our Healthcare practice to support their significant growth. We're also actively recruiting in Energy, and then always kind of maintaining our trends. And Lee, what's our estimate just for headcount towards the end of the year?

Lee A. Spirer

David, I think on the last call, we mentioned -- Tom was talking guidance that we thought over the year. On a net headcount basis, we'll be up around 5% to 7% or 100 to 135 professionals, and I'd say, we still feel very comfortable with that for kind of a year look.

David Gold - Sidoti & Company, LLC

Okay, perfect. And one last one, if I can throw it in. Any update or change of -- on the repurchase side, I know, you increased the sort of anticipated repurchase for the year or your expectation on the last call, but just curious if that's still consistent or if you might do more there.

Lucinda M. Baier

We're generally consistent on our share repurchase assumptions for the year. As you saw between Q4 and Q1, we purchased relatively the same dollar amount of stock. Clearly, because our stock price went up in Q1, we purchased fewer shares. But on a dollar basis, we would expect to be consistent. Now that's, of course, dependent on our share price, as well as the business performance.

Operator

Our next question comes from Joseph Foresi of Janney Montgomery Scott.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

My first question is just on the M&A that was done in the Disputes & Economics practice, what was the contribution from a revenue perspective this quarter? And is that fully ramped at this point?

Julie M. Howard

I'm sorry, you're talking about in M&A, you're talking about the acquisition of AFC, which was done in December of 2012?

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Yes.

Julie M. Howard

We don't typically highlight very specific small sub-practices within the company, but they are ramping as we expected and talked about.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. So -- okay. I was looking for the revenue contribution, but it sounds like it's already integrated into the business. Is that fair?

Julie M. Howard

Absolutely, all of our business are immediately integrated, so that would be integrated within our Economics practice, which is, within the Disputes segments of the firm. Although, we had mentioned when we acquired that company that, we expected over time that we could have kind of an equivalent contribution, relative to, potentially, the loss of revenue for the sale of the other part of the Economics practice that, at some point, we would get to that point of being relatively consistent in revenue contribution.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Right, and I guess what I was getting to is, has it performed in line with that expectation thus far?

Lucinda M. Baier

And what I would say is, if you look at sort of the overall segment, DI&E, I think the guidance we gave last time was that DI&E would be flat for the year. We're signaling a slight change on the guidance from -- for the segment to be flat to down in the low single-digits, but it doesn't relate to the Economics practice.

Lee A. Spirer

Joe, let me add as well. I mean, we talked a little bit about the state of this practice with the rest of our business, and so on the softer side, the fact that they are very focused in securities litigation is proving to be a great, good synergy with some of our other practice areas, so we're very happy with the performance in this quarter.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay, great. And then secondly, just -- Julie, you gave a very good description of some of the trends there, kind of within each individual business. I was wondering if you could provide just a little bit more color. If I was -- if you're looking at those pipelines a quarter through the year by practice, has anything changed on the pipeline front? And where are you may be seeing more demand and/or less demand? Anything you could point to across the services, now that we're sort of a quarter through the year?

Julie M. Howard

Yes. I mean, Joe, one of the reasons that I wanted to go through the trends was to highlight the opportunities that we have in the kind of longer-term market trends that we face. But also to acknowledge that quarter-to-quarter, we're going to have volatility in our business, that much of our business is event-driven and so, we'll experience ups and downs relative to that. So there will probably always be a little bit of a shift. And we want to remain focused on the year-over-year trends, which consistently have been moving in the right direction and positive. So for the rest of the year, I would expect that the Healthcare segment, and certainly, the Energy segment, will continue to post very positive results and continue to grow, relative to the markets that we serve. We have a lot of opportunity there. As Cindy has already talked about, our Disputes business, being probably flat for the year and maybe slightly down towards the end of the year. And that's really just a combination of, partially, the sale of a business. Partially, we had some attrition, relative to the investigative market that hasn't bounced back from a very strong 2011 and strong first quarter in 2012. So it's a combination of things. And then in our FR&C business, we feel really good about our thought leaders being able to reposition themselves in the mortgage review area, and they're actively seeking and pursuing new engagements. So in sum, it's -- we're consistent with and feel good about the guidance that we have out there for the year.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay, that's helpful. And then the last question on my front is, I know we had gotten sort of updates as we've gone along about the percentage of revenue coming from subscription-based models, are the subscription part of your revenue that you're working on increasing. Maybe you could talk a little bit about where we stand with that, and then also, any update or any changes on sort of your thoughts around the margin profile going forward?

Julie M. Howard

I think, Joe, you might be referring to just kind of Data, Tech and Process as a whole?

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

That's right.

Julie M. Howard

And so, that continues to be, say, a percentage of 11% or 12% of our total revenue stream. So that's relatively consistent, and we'll continue to invest and be able to leverage that into our consulting businesses. And Lee, maybe you want to talk a little bit about where you -- where we are leveraging that, and where you can kind of see it. And then, I'll come back to the margin question.

Lee A. Spirer

Sure. Joe, to your question on recurring revenue, there's a lot of different economic models that sit in that Technology, Data and Process space. It's really a portfolio of businesses that include things like e-Discovery. It includes some of our software and data analytics solutions in Healthcare, our research and benchmarking in Energy. There's a number of businesses there. Some of them are subscription, some of them are transactional, and there's even some ancillary advisory services that's sits on top of the technology. So as a whole, we see these businesses growing over time. A lot of them are still relatively early stage. So looking at them quarter-to-quarter is a little challenging. But over the course of time, we clearly expect this to grow. It's part and parcel of what we do. It's the way that we're leveraging our expertise out of our industries to create more value for our clients. So over time, we see that this will grow.

Lucinda M. Baier

And just to draw you back to a specific data point, our process, Tech, Data and Process business is up 3%, year-over-year, so we're comfortable.

Julie M. Howard

And then I think your last question, Joe, was just about the margin improvement. We've talked about it every quarter, we're continuing to make progress. And I don't know if there's any further detail that I want to give you on that, but our longer-term goal for 2014, to be at an 18% EBITDA margin remains intact.

Operator

Our next question is from Tim McHugh of William Blair.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Just -- I had a couple of questions. One, just on the Healthcare side. I was curious, you talked about state governments and doing more work, I'm assuming related to kind of the establishment of exchanges and that sort of thing. That's kind of a newer area, it sounds like for you guys. Is that significant? Or, I guess, just a little more color on that.

Julie M. Howard

Tim, we have actually always had a payer practice at Navigant for, well, the last 14 years. As long as I can remember, we've been serving state government, primarily, and helping them manage through managed care and how they provide their services. Yes, right now, a good part of the focus is really on helping them to design and strategize and develop their exchanges. So it's a very robust part of that business at the moment, but we have had that business for a long time.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Are those -- are the nature of those, abnormally large engagements, or are they more smaller strategic types?

Julie M. Howard

They are not abnormally large. It's strategic work. There isn't anything different in the lumpiness of that business, if that's what you're asking. It's a relatively consistent size of engagement.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. On the Energy business, can you -- and obviously, great performance this quarter. I guess now that the whole sequestration issue has been passed, the chunk of that business that comes from the government, what is the, I guess, what have you seen and, I guess, what's the risk around that?

Julie M. Howard

It's a -- just a decent portion, probably 20% of -- maybe up to 25% of our overall revenue stream within the Energy practice. We have not been impacted by sequestration. We continue to maintain the workload that we have and short of anybody saying anything else to us, we expect to meet our plan in that segment of Energy practice for the year. Certainly, as you understand how the federal budgets work, we will be back at it, say, re-up those in September of each year. So we'll be preparing for that this summer. But at this point, no change, Tim.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then on the margin front, Cindy, I believe you said part of the G&A improvement was timing the year-over-year. I guess, just more broadly, I guess, how sustainable is this level of G&A? Or do we need to expect that it moves back up?

Lucinda M. Baier

That's a good question, Tim. What we are looking at for the first quarter is that about 1/2 of the first quarter improvement relative to 2012 is timing, and that will reverse throughout the rest of the year.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And on the gross margin front, you seem to -- you cut back the headcount a little bit and utilization was solid. But the gross margin, I guess, was down a little bit. Can you talk about the -- not a lot, but, I guess, given the, I guess, given the fact that the business is holding up steady, I guess, what are the puts and takes? Is it just because utilization's down a little year-over-year?

Lucinda M. Baier

The way that I like to look at the business, Tim, is I like to look at the segment operating margin level. And if you look at the total margin dollars, we had 3 segments that improved their performance on a margin-dollar basis, sort of year-over-year. 2 of those segments increased their margin rate year-over-year. The only segment that really had a decline in segment operating margin from 2012 to 2013 was the Disputes, Investigations & Economics practice. And there was a lot happening in that business, sort of during the first quarter, with the sale of the business, with the fact that we had some pricing pressure on some large projects. We had another large project that's been very successful for us over a couple of years that ramped down. And we had to make the decision for the business about investments. There's a base level of investment to that business that we think is appropriate, because we're expecting the revenues to rebound as the year progresses, so we maintain that investment. We also think that technology is very important to that business, and so we've made some technology investments in the first quarter that impacted the margin.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, and one last numbers question. Just the tax rate, is the Q1 numbers sustainable? Or does that have to come back up at all?

Lucinda M. Baier

Yes, we think that the Q1 rate of 41.5% is consistent with what we expect for the year. For reference, our tax rate last year was 41.8%, so roughly comparable. Clearly, if we do something significantly different with our business, that could change. But we don't see anything now that would materially change that number.

Operator

Our next question comes from George Sutton of Craig-Hallum.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

And Cindy, welcome. So a lot of the questions that I had have been asked. But one, I wanted to focus on, relative to Julie's comments on the regulatory environment and the shifting priorities of the SEC office that you see, and I just wanted to parallel that, and that -- which sounded like you were optimistic about some of those priorities shifting. But later in the call, you mentioned you're reallocating people from SEC-focused areas into other areas. And I just want to make sure I understood the logic there.

Julie M. Howard

Yes, the logic, really, is we kind of have this interesting dynamic right now. We've had, as we mentioned, a really long and significant investigative job that ramped down in the first quarter of this year, relative to a very strong quarter in the last year. So you have to think about repositioning in that team, as they are, and taking the market another way, in anticipation of what we believe will be an increasing investigative market. But we have a little bit of a period of time where we have to see how the new leadership of the SEC, where they focus their energy. Enforcement was down in 2012 and into 2013. And at the same time, the Whistleblower efforts under Dodd-Frank seemed to be emerging, and we've seen an increase there. So for right now, George, I think, we're in the stage of an anticipation that, that will improve, but a recognition that it's a bit wait-and-see at the moment.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

I understand. And just so I'm clear, you were excited about the number of inquiries coming in to the SEC office, particularly related to reporting issues.

Julie M. Howard

We are.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

But -- and then, obviously, a new SEC commissioner. Is there anything else that has at least been stated somewhat publicly that suggests that -- why you're encouraged? I just want to make sure I understood that.

Julie M. Howard

It's increased actions by the Department of Justice. So as we began to see -- our sense is that there will be a reemphasis on enforcement. And as that emerges, certainly, that creates opportunity for us.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

So initially, more DOJ-related, in other words.

Julie M. Howard

Correct.

Lee A. Spirer

I think with the political environment, as it is, with the folks moving into those offices, we do expect more enforcement across the board. But as Julie said, we've got to wait and see how that happens.

Operator

Our next question comes from Randy Reece with Avondale Partners.

Randle G. Reece - Avondale Partners, LLC, Research Division

You said something about attrition. You usually give a trailing 12 attrition rate. Do you have that number?

Julie M. Howard

We do have it. It's 14%, and just consistent with our last quarter. So we feel very good about our retention rate.

Randle G. Reece - Avondale Partners, LLC, Research Division

If you look at the legal tech, e-Discovery kind of business, what did the year-over-year comparisons look like versus the last couple of quarters?

Lucinda M. Baier

So on a year-over-year basis, the legal technology and process group was up 3%. If you look at a sequential basis, there was some pricing pressure and a large project that ramped down from Q4 to Q1.

Lee A. Spirer

So Randy, can I jump in as well? I think Cindy's talking about the 3% in Technology, Data and Process, which, as we highlighted a little earlier is a collection of a number of different businesses that look like that. A big part of that is our legal technology business in e-Discovery and structured data and some software. But there are a number of other businesses in that portfolio, and we have not been reporting on those subsegments.

Randle G. Reece - Avondale Partners, LLC, Research Division

Okay. If -- one issue with sequestration would be budget pressures on the federal court system. And there is some concern that it could constrain caseloads. Have you seen any sign that it's kind of early? Are you concerned about it? And how much would it affect you?

Julie M. Howard

We have not seen any sign of that, Randy. And so we're not concerned at this moment about that. And I'm not sure that it would constrain us as much as maybe people would anticipate because we're often very involved in dispute-related work, that is just pre-court situations. So there's always a lot of work that is done. Often, many things don't actually get to that level. So at this point in time, we're not concerned.

Operator

[Operator Instructions] Our next question comes from Tobey Sommer of SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

I had a question for you about the seasonality of EBITDA margins throughout the year, because you had a nice pickup year-over-year in the first quarter margins. Can you refresh my memory as to what a typical drift is in improvement from the first quarter through the balance of the year ending in the fourth?

Lucinda M. Baier

Let me try to answer it this way, Tobey. If we look at sort of Q4 to Q1, you would normally see a couple of points that relate to higher benefit and tax loads in the first quarter of the year.

Julie M. Howard

A loss of a couple of points, a decrease.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Right. And then from the first to the fourth, so it will be a couple of 2, 3 points drift, naturally.

Lucinda M. Baier

Naturally, Q1 is a couple of points lower than Q4.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. My next question kind of has to do with the Technology and Data businesses. Julie, how do you feel like those are progressing? And are you seeing additional opportunities for you to develop more of those internally and add through acquisition as well, so that may be something that you feature more prominently in your releases going forward?

Julie M. Howard

Yes. As I think I have mentioned before, Tobey, we are looking to develop and grow more kind of technology, analytics and process-type businesses to support and leverage our consulting businesses. Wherein, as we like to talk about it, we're in our nascent stages. We have a number of different opportunities that we've been developing. And we, as you can imagine, are certainly evaluating and scanning and then considering plenty of other opportunities. I would expect to see this business grow as a percentage of overall revenues for Navigant over time, but it's not that it's an easy market either, because there's a lot of businesses that are trying to incorporate more technology solutions and analytics into their business base. But it's an area of focus for us, and we will anticipate, over time, that we would grow there. And at some point over time, we would probably talk about it more fully on its own.

Operator

And at this time, there are no other questions.

Julie M. Howard

Okay, I think with that, thank you, all, for joining us, and we look forward to talking with you again at the next quarter.

Operator

This does conclude today's conference call. You may disconnect your phones at this time.

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